A division of Soft Landing Korea Ltd.
By Tom Coyner
Dec. 27, 2006
Since spring, this newspaper has featured my weekly column. Readers have often asked if I may be offering the columns in a book. The answer is yes -- in a 250-page volume, published by Seoul Selection, that will be available this coming January [sic: it now looks more like early February], co-authored by Jang Song-Hyon. The book will include what is presented in this and other columns, but with much more information. So, for better or for worse, you have been warned.
Getting to this week's topic, let me point out there are several consumer product distribution systems operating in Korea. An observant marketing manager can find advantages and disadvantages in each system and must choose the one(s) most appropriate for one's product line.
General Trading Companies & Importers
Imported products, such as high-priced consumer products and household durables, can be distributed through the large general trading companies or by the importers themselves. Their distribution channels have been in existence for quite some time and are therefore relatively well developed.
Manufacturers maintain, however, very little control over this distribution system. There is also a limited potential for growth with many of these products, as their high prices push them into the upper-end of the market. A few notable exceptions to this rule, however, do exist.
The importance of independent distributors to the growth of Korean industry has been recognized and their development is proceeding at a rapid pace. Department stores, supermarket and convenience store chains, as well as major discount stores have proven popular. But they now have gigantic purchasing power and routinely demand -- and get -- exceptional pricing as well as supplier-financed promotions.
Often goods can be distributed through channels established by other manufacturers, such a mutually beneficial move serves to expand and diversify their product line. It also allows them to utilize their distribution system to its full capacity by accepting products from other manufacturers. Here, it is important that the products of the two manufacturers in question be compatible in nature, i.e., related but not directly competitive. Consumer and food & beverage companies are particularly well suited to use Korean manufacturers' logistics and distribution systems. Some companies, such as Nongshim -- a manufacturer of instant noodles, etc.-- have excellent distribution and inventory control systems down to the neighborhood mom-and-pop store level. Partnering with such a company may maximize possible market penetration.
Partner/Parent Joint Venture Company
In a joint-venture relationship, the local partner/parent company usually distributes the products of their subsidiary. In this situation, as in all business encounters, good, cordial working relationships are absolutely necessary for success. One should also provide proper motivation of the field force for their ``step-brother products'' since one cannot simply assume they will push one's products as aggressively as their parent's goods.
Distribution is one of the most important factors affecting the success or failure of a consumer product. This basic fact reveals the critical nature of the control of distribution channels. Although costly in terms of time and money, the establishment of one's own distribution system can be greatly beneficial in the long run. Such a plan should be executed gradually over a period of time: product by product, segment by segment, region by region. As long as one maintains a sustainable comparative advantage, developing one's own distribution is desirable.
Select Distributors Carefully
Since the role of distributors is so important, one has to pay careful attention to their capabilities before making a commitment to any one of them. Consider in depth their strengths and weaknesses and in channels such as supermarkets versus convenience stores; also weigh their regional strengths, merchandising capabilities, etc. One must also compare the compatibility of their existing products with one's own and investigate the financial stability and reputation of the owner. Try to be open-minded about new venues such as television home shopping, the Internet and cell telephone purchasing.
Whether one distributes directly to the consumer or wholesalers or joint-venture partners, personal relationships play a major role in business transactions. Business must be regarded as the building of a network of relationships. Without such a network, it is extremely difficult for a business to be prosperous. Although time-consuming and costly to build, relationships once established can be both durable and profitable.
The concentration of population in urban areas makes expansion relatively easy especially in physical distribution. Companies with limited resources may take a step-by-step approach, either by region, such as Seoul and the metropolitan area which usually represents half of the market, or the three major cities -- Pusan, Daegu and Gwangju in Chollanam-do, and the rest of the country. If a wide range of products is involved, a product-by-product approach may be taken. Innovative online distribution can make one's products available nationwide immediately.
Maintain a "Feel of the Market''
Closeness to the market is one of the major traits common among large and successful Korean corporations. The local market is quite dynamic and the pace of change -- often at Internet speed -- is so rapid that lucrative opportunities may pass one by, or competitors may take over one's share of the market if one is not attentive to the changes.
Dependence upon the goodwill of the distributor is not always desirable. Since one of the most important elements for successful marketing is the distribution capability, one has to strive to develop expertise and capability in this area as well as with such intangibles as a network of personal relationships through local employees. Here, stability and the loyalty of local executives and staff are of paramount importance.
At the same time, Korea is a world leader when it comes to leading edge distribution channel development. It may be critical to one's Korea operations' success to closely monitor what are the newest developments in online shopping and distribution.
Product suppliers have found some distribution systems rather precarious, yet crucial. An effective and economic distribution channel is absolutely indispensable to significant business expansion and growth. The prudent business executive must probe the alternatives and devise an efficient system that expedites one's products to the consumer as quickly and reasonably as possible. In some cases, just getting one's products into a single national discount store or convenience store chain may be enough to get one's products launched in Korea. At the same time, one's products' next truly big distribution opportunity may take place on the Internet or cell phone.
Imagination and ingenuity can devise such a system with the help of local counterparts. New and collaborative ideas may give one insight into knowing which way to go. One thing is certain. The Korean market will not stay static -- and nor should one's distribution strategy. Korean consumers are world leaders in using the Internet and wireless networks via cell phones and PDAs. Perhaps in a future column we may review that important aspect.
Tom Coyner, a long-term resident in Korea, runs consulting firm, Soft Landing Korea. Coyner can be reached on softlandingkorea.com.